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Lands' End Spin-off in Final Stages - Analyst Blog

The previously announced Lands' End spin-off initiated by the struggling Sears Holdings Corp. (NASDAQ: SHLD) in Dec 2013 has reached the final stages as the Sears' board approved the separation and determined a timeline for its completion.

The board of directors of Sears Holdings have slated Apr 4, 2014, as the spin-off date for its casual clothing business, which will be initiated through a pro-rata distribution of Lands' End's common shares. Following the completion of the spin off, Lands' Ends will trade on the NASDAQ Capital Market under the ticker symbol “LE,” while Sears Holdings will continue to trade on the NASDAQ Global Select Market under the “SHLD” stock symbol.

As part of the spin-off, the shareholders of Sears Holdings will be entitled to receive 0.300795 shares of Lands' End for each of the Sears Holdings shares they hold. The pro-rata shares will be distributed on Apr 4, 2014 to Sears' shareholders with record as of Mar 24, 2014. However, the company indicated that shareholders entitled to receive fractional Lands' End shares will be given cash awards in lieu of the shares.

Further, Lands' End will pay a dividend worth $500 million to Sears' shareholders before the spin off takes effect. The dividend will be financed via a term loan facility of $515 million. Additionally, the spun-off company will borrow about $175 million under a senior secured revolving credit facility along with a letter of credit sub-limit. The company expects to use the remaining $15 million from the term loan to settle fees and expenses related to the aforementioned debt facilities.

Sears Holdings has long been grappling with weak top-line performance and even weaker bottom-line results. In an effort to enhance liquidity and improve operating performance, the company has resorted to strategies that focus on reducing investment in sections of the company that no longer contribute significantly to its growth.

Lands' End is the latest among the asset that Sears has shed over a period of time. Previous ventures in this direction include the spin off of its Orchard Supply Hardware Stores unit in 2011 and its Sears Hometown and Outlet business in 2012. The company continues to operate its Sears department stores and the Kmart discount chain.

Further, Sears Canada Inc. – a unit of the cash-strapped broadline retailer – terminated leases at five of its stores, including 4 stores in Ontario and 1 store in British Columbia. The transaction fetched Sears about C$400 million.

Looking ahead, as part of its transformation plans, the company is expected to spin off its Sears Auto Center business. The separation will provide additional liquidity besides helping focus on its core business.

Notably, this Zacks Rank #3 (Hold) company is focusing on cost containment, inventory management and merchandise initiatives to elevate margins. We commend the company's strategy of capitalizing on opportunities, while increasing profitability through its revamped organizational structure and new operating model. All these measures are expected to drive top and bottom-line growth.